August 12, 2020

Economix Blog: Positive News Muddles Political Talking Points

Ana Navarro, a Republican strategist and commentator, had a novel thought in response to Friday’s jobs report, which showed 195,000 new jobs created in June:

Not really.

The positive report actually deprived both sides of talking points. Republicans acknowledged that the numbers were good — but not good enough. The White House appeared to tacitly concede that the effects of automatic budget cuts were not as dire as feared. In reaction to recent jobs reports, the Obama administration has called on Congress to replace so-called sequestration with a more deliberate approach to help the economy. But Alan B. Krueger, chairman of the Council of Economic Advisers, did not pick that bone on Friday, for the first time since sequestration went into effect.

“While more work remains to be done, today’s employment report provides further confirmation that the U.S. economy is continuing to recover from the worst downturn since the Great Depression,” Mr. Krueger said in a blog post. He was vague in policy prescriptions going forward, saying that Washington should not “impose self-inflicted wounds on the economy” and that President Obama would continue to push the agenda he outlined in his State of the Union address.

Republicans, on the other hand, did have specific complaints. Just as they praised the uptick but called for stronger growth, Republican leaders called on Mr. Obama to delay the employer mandate beyond the year announced earlier this week.

“Delaying the inevitable for one year will bring no solace,” said Representative Eric Cantor of Virginia, the House majority leader, in a statement. “We must have a permanent delay of Obamacare before we can realize our full job creating potential.” [Read more…]

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Furman Is Expected to Lead Council of Economic Advisers

WASHINGTON — The White House is expected to name Jason Furman, the deputy director of the National Economic Council, as the chairman of the president’s Council of Economic Advisers, according to a person familiar with the matter who declined to comment on the record.

Mr. Furman is one of the last holdovers from the original Obama administration economic team that managed the financial crisis and deep recession. His nomination, which the Senate must confirm, might signal a more powerful role for a body that has in the last few years proven less central than the National Economic Council and the Treasury Department.

Mr. Furman, who has a doctorate in economics from Harvard, has a long history in Washington. He served as an economist in the Clinton administration, spent time at the World Bank and has advised several Democrats, including current Secretary of State John Kerry during his presidential campaign. Before joining the Obama campaign, he worked at the Center on Budget and Policy Priorities and the Hamilton Project, a research group developed by former Treasury Secretary Robert E. Rubin.

In the Obama White House, Mr. Furman was central in the construction of the stimulus bill, pushing for provisions to aid low-income families, former colleagues said. Since then, he has been instrumental in devising a range of the president’s proposals, including budgets and the tax deal passed this winter.

Traditionally, the head of the Council of Economic Advisers has been an academic economist, tasked with giving unvarnished economic advice to the president. Currently, Alan B. Krueger, a lauded labor economist who also served in Mr. Obama’s Treasury Department, holds the post, where he has focused in part on the issue of inequality.

Mr. Krueger will return later this year to Princeton University, where he is a tenured professor who has published influential works on topics including education and the minimum wage.

“Over the past two years, Alan has been one of my most trusted advisers on economic policy and a great friend,” Mr. Obama said in a statement. “Alan was the driving force behind many of the economic policies that I have proposed that will grow our economy and create middle-class jobs. He’s devoted his entire career to making sure our economy works for everyone, not just those at the very top.”

Colleagues said that Mr. Furman has the analytical stature and credentials for the position. “Jason has spent his career mostly working in economic policy, rather than academic settings,” said Lawrence H. Summers, the former Treasury secretary. “It would be easy to conclude from that that he was not a rigorous academic economic thinker. That would be badly wrong. He’s one of the smartest, clearest thinking, most data-oriented economists I know.”

N. Gregory Mankiw, who headed the Council of Economic Advisers during the George W. Bush administration, also showed enthusiasm for the appointment, writing on his blog that Mr. Furman is “smart, knowledgeable and sensible.” He added: “He does not come to the job with as long an academic track record as other recent picks, but he has far more policy-relevant experience and expertise.”

When Mr. Furman first took a job with the Obama administration, he received some criticism from the left. Some liberals questioned his ties to Mr. Rubin, a centrist. Labor leaders denounced him for a 2005 paper calling Walmart a “progressive success story.” Mr. Furman argued that poorer families benefited disproportionately from the chain’s low prices. “Even if you grant that Walmart hurts workers in the retail sector — and the evidence for this is far from clear — the magnitude of any potential harm is small in comparison,” he wrote.

The Obama economic team — having come through a bruising two years of budget battles with Congress — remains at work on issues like education, deficits and reforming the tax code, as well as policies designed to help support the sluggish if strengthening recovery.

Mr. Furman’s appointment would continue the administration’s habit of shuffling around well-known faces more often than bringing in new blood. Mr. Obama has recently named longtime aide Michael Froman as the United States Trade Representative, for instance, and his former chief of staff Jacob J. Lew as Treasury secretary.

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Economix Blog: Alan Krueger’s New White House Job

Alan B. Krueger, an economist at Princeton, has been chosen to be the next chairman of the president’s Council of Economic Advisers.

He’s an interesting choice for this job. Usually that position is held by a macroeconomist, and the selection of Dr. Krueger, a microeconomist known for his work on labor issues, sends a strong signal that the administration may be devoting more energy to job creation.



Dollars to doughnuts.

Dr. Krueger has an eclectic set of interests, as indicated by not only his academic research but also the columns he wrote for Economix from 2008 to 2009. For example, he has written about rock concerts, happiness, health care, the value of a college education, and terrorism. While he was chief economist at the Treasury Department from 2009 to 2010, he worked on more macro issues related to areas like tax policy and public debt. But still, he is most closely associated with his work on the job market.

Dr. Krueger is also an empiricist: He looks at what is going on in the real world, then tries to make sense of it. (In recent years, you may recall, the economics profession has come under attack for being too theoretical and disconnected from reality.) Sometimes he uses data that is readily available, and sometimes he commissions or designs his own surveys, often working with Gallup.

Partly because he is data-driven and relatively nonideological, he has many fans in the economics community from both left and right — despite the fact that his flagship research is the cornerstone of any liberal campaign to raise the minimum wage. You can see this in reactions throughout the econoblogosphere, including plaudits from conservative economists like Greg Mankiw and Tyler Cowen.

Perhaps his data-driven approach and bipartisan appeal will make his Senate confirmation process an easier endeavor. He has also been through it before, after all, when he was nominated for his Treasury post. Given the administration’s record in getting other nominees through, though, this may still be a long slog.

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Economix: How to Create Jobs and Cut the Deficit

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

Another federal minimum-wage increase would not, as some proponents promise, create jobs, but would reduce employment.

A few months ago, The New York Times editorialized that America’s minimum-wage workers “need a raise.” The Center for American Progress said a higher federal minimum wage “encourages spending, investment and economic growth.”

Many economists expect the minimum wage, if it has any effect, to raise employer costs and thereby reduce employment, especially among people who are likely to work in minimum-wage jobs, like part-time workers.

Federal and state minimum wages have changed a number of times over the years, and each of those instances provides an opportunity to test the employment-reducing hypothesis. For the episodes before 2007 (which I’ll refer to as the historical minimum-wage increases), many statistical studies of minimum-wage effects are summarized in books by David Neumark and William L. Wascher and David Card and Alan B. Krueger.

Not everyone interprets the historical evidence the same way. The New York Times and the Center for American Progress cited some of that evidence to alleviate concerns that a minimum-wage increase would reduce employment.

Even those who believe that historical minimum-wage increases did little, if anything, to reduce employment are still likely to appreciate that a minimum wage that was high enough — a hypothetical $100 an hour, for example — would significantly depress employment. The real disagreement is whether historical minimum wages were high enough, and the economic situations right, for those increases to destroy a large number of jobs.

The most recent federal minimum-wage increase, on July 24, 2009, had the potential to have different effects than its predecessors. Adjusted for inflation (and deflation), by 2009 the real federal minimum wage had been raised to a level 32 percent higher than it had been in 2006 — nowhere near our hypothetical height, which we all agree would be destructive — but perhaps high enough to have some of those effects.

In addition, during a recession hiring decisions may be especially sensitive to employment costs, though some economists say recessions make employment less sensitive to wages.

It’s also easy to exaggerate the effects, good or bad, of the federal minimum wage, because seasonal workers, employees who rely on tips and others are exempt from it, and a few states have minimum wages above the federal minimum.

For these reasons, I have been studying the 2009 federal minimum-wage increase by itself and trying to separate the effects of the recession from the effects of the wage increase (see this recent publication for more details; my next posts will point to some other findings from the 2009 increase).

Part-time and teenage employees are especially likely to have hourly wages near the federal minimum. The red line in the chart below displays seasonally adjusted national part-time employment by month, from the Census Bureau’s monthly household survey. Before July 2009, part-time employment increased by about three million during the recession and that month reached the peak level of part-time employment.

To investigate the possibility that the July 2009 wage increase stopped further increases in part-time employment and perhaps affected other employment categories, I estimated a monthly model of national part-time and full-time employment per capita for each of 12 demographic groups distinguished by race, gender and age (white and nonwhite, male and female, and 16 to 19 compared with 20 to 54 and 55 and over), using data from before the increase.

I used the model to forecast part-time and full-time employment for each demographic group for August 2009 through December 2010. The aggregate deviation of the part-time predictions from the actual was added to the red line to arrive at the aggregate part-time prediction shown as the chart’s blue line.

After falling 9.3 million during the recession through July 2009, aggregate full-time employment fell another 1.8 million by the end of the year and remained below July 2009 levels at the end of 2010. Some people dismissed from their full-time jobs probably had trouble finding another suitable one, and some of them worked part time while they searched.

Consistent with this story, my estimates predicted that part-time employment would have continued to increase during the second half of 2009 because, before the increase, part-time employment tended to increase with full-time job losses.

The actual and predicted data depart dramatically beginning in September 2009, with actual part-time employment 1.2 million below predicted part-time employment by December and averaging 975,000 part-time positions below what was predicted over the months August 2009 to December 2010.

A small number of these job losses were offset by possible increases in full-time employment (relative to what it would have been – more on this next week). I find the total job loss from the July 2009 minimum-wage increase to be about 800,000.

If raising the minimum wage reduced employment by 800,000, cutting it back to its early 2009 level is likely to increase employment by 800,000. That would add a bit to government revenue as some of those people moved from unemployment benefits to tax-paying workers.

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